1. Keep your business finances separate from your personal finances: Don't give the CRA a reason to audit both. Learn to pay yourself first and run your business on the remaining cash. By this I mean setup an automatic payment to your personal account twice a month (1st & 15th or 10th & 25th) like a regular pay cheque.
2. File all your tax compliance reports on time: to avoid penalties, even if you can't pay the amount owing. However if you begin the habit of putting money aside in a separate account (savings account) to pay your taxes, you will have created a solution. Start today. Put 10 to 20% of all cash received by your business into a separate account. I recommend this account be at a different bank than your current business and personal accounts. I like to use one of the online banks for this like President's Choice Financial or Tangerine.
3. Keep organized by:
developing methods for handling all your paperwork;
entering your bookkeeping data in batches;
actively managing your cash flow; and
reviewing your bank statement and financial reports weekly or monthly.
4. Audit proof your records.
Keep all your receipts, no matter how small the amount and make sure they are legible. Receipts you must keep include debit receipts and credit card receipts.
Deposit all your business cash flowing into the business ... so you can prove what was income (taxable) and what was contributions or loan proceeds (not taxable).
5. Whenever possible, don't go into debt to run your business.
Run your business on your existing cash flow. Not enough cash flow to cover expenses? Figure out where to cut your expenses and consider not offering credit to your customers because you are not a bank. Let your customers pay by PayPal or merchant accounts. Keep a business journals to diarize your logic for your business ventures. It will help show you incurred the expenses with the expectation of profit.
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